‘Proxy for Bitcoin Holding’: Crypto Firms Set to Go Public as Market Hits $ 3 Trillion

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Since the emergence of the pandemic bull market, the demand for publicly traded companies participating in the crypto ecosystem has increased

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Stephanie Hughes In general, the TSX classifies crypto companies in the technology category. Photo by Edgar Su / Reuters Files Content of the article

The total value of the cryptocurrency market crossed the $ 3 trillion mark on Monday, fueled by price gains in bitcoin and ether, but it’s not just the currencies themselves that are sparking an influx. of investor interest.

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Since the emergence of the pandemic bull market, demand for publicly traded companies participating in the crypto ecosystem has also increased, with a number of companies such as Coinbase and Voyager Digital listed on the public markets. Last week, Toronto-based crypto trading platform CoinSmart became the latest to be publicly traded, on the NEO Exchange, where its shares jumped 24% on the first day of trading.

Joseph Vafi, managing director of equity research at Canaccord Genuity LLC, expects a boom in Canadian and U.S. crypto companies going public as investors seek exposure to the sector.

“One of the reasons that American investors are so interested in these companies is that they may believe in crypto… but it is very difficult to own Bitcoin directly because it is not a vehicle for investment approved, ”Vafi told the Financial Post. “People buy stocks, like Hut 8 and miners, because they are a proxy for holding Bitcoin.”

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Vafi added that Canada sees the same enthusiasm for crypto stocks. When analyzing these companies, Vafi takes different approaches and qualities depending on the part of the crypto space in which they operate. Miners tend to have fixed costs and their performance follows the price of bitcoin, much like a gold miner would make more profit on the rising value of gold, Vafi said. The exodus of bitcoin miners out of China to other markets, such as the United States, Kazakhstan, Russia and Canada, is another element supporting mining stocks.

When it comes to crypto trading and brokerage, Vafi focuses on the Enterprise Value / Sales or Enterprise Value / EBIT ratio, especially with companies like Coinbase that have a more mature level of profitability. Vafi said this was due to the rapid growth rates of brokerage houses and exchanges, which offer comparability with other technology segments, such as software as a service (Saas) technology and the internet.

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While the market has grown rapidly, Vafi believes there are still plenty of leads.

The cryptocurrency market is now worth over $ 3 trillion.

“I think it’s going to spread pretty quickly…. I think you’re going to continue to see more and more people owning the assets through exchanges… institutions are getting involved here quickly, ”Vafi said. “(The market) is really growing as fast as you might imagine, not growing so fast that it is torn apart in the air because it is going so fast.”

In Canada, pioneering companies such as Quebec mining company Bitfarms and Alberta’s Hut 8 Mining were first listed on the Toronto Stock Exchange in 2019. Hut 8, which began trading on the TSX Venture Exchange in March 2018 and on the TSX in October 2019, is through a TSX Sandbox program. Hut 8 was also listed on the Nasdaq in June and has seen its shares jump more than 50% in the past month.

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The TSX Sandbox program, launched in April 2019, aimed to attract applicants who may not yet meet all the exchange listing requirements, but could be accepted if they meet other conditions under the program. In the case of Hut 8, it completed the program in October 2020 after filing a prospectus and encountered no compliance issues for 12 months. Another crypto alumnus of the program is Galaxy Digital Holdings Ltd., based in New York City.

In general, the TSX classifies crypto companies in the technology category, which has requirements such as having a minimum of $ 10 million in cash, having adequate funding to cover planned capital expenditures, and having sufficient funds. products at an advanced stage.

If it was easy everyone would do it

Justin hartzman

Despite the growth of listed crypto companies, Vafi does not anticipate much consolidation, especially no significant mergers among the biggest players such as Coinbase.

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It is not a view shared by all who view the space. Kevin Dede, managing director of equity research at HC Wainwright, says we’ll know more when the next downturn hits the industry.

“If you remember the last cycle of bitcoin’s downturn… there has been some consolidation on the mining front,” Dede said. “I remember talking to a lot of companies, and now a lot of them are gone.

According to Justin Hartzman, co-founder and CEO of CoinSmart, more public crypto companies could pave the way for consolidation eventually.

“The reality is that there is probably going to be a lot of consolidation in the market,” Hartzman said. “Consolidation sometimes becomes easier when companies are public. So we will see how it goes in all areas. “

While Hartzman said filing a public record as a crypto company is no different than filing in other industries, there are details such as regulatory review that set it apart.

“If it was easy, everyone would do it,” he said.

• Email: [email protected] | Twitter: StephHughes95

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